Should I Worry About a 20-Point Credit Score Drop?

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Seeing your credit score drop can be disheartening. But should you sweat a 20-point decline?


key points

  • The higher your credit score, the easier it is to borrow affordably.
  • While a 20-point credit score drop isn’t ideal, in some cases, it may not hurt you at all.

Your credit score isn’t just a random number. Rather, it’s a calculation that tells lenders how risky or trustworthy a borrower you are.

A higher credit score could lead to more affordable borrowing opportunities, like a lower interest rate on a mortgage or personal loan. And those great credit card offers you see advertised? Often, the most attractive ones are reserved for borrowers with great credit.

It’s for this reason you should aim to avoid situations where your credit score takes a hit. But what if your score goes down by 20 points?

There are several factors that could lead to a 20-point drop. Paying off a loan, for example, could result in that sort of decline (even though you’d think paying off a loan would perhaps have the opposite effect). The same holds true for applying for too many new credit cards within a short period of time.

Clearly, any credit score drop is less than ideal. But should you sweat a 20-point decline?

Look at the big picture

If your credit score is in truly great shape, then a 20-point drop may not impact you all that much, if at all. It’s when your credit score is teetering on the verge of being not so great that a 20-point drop matters more.

Imagine you have a credit score of 825, which is considered excellent. With a score like that, you’ll generally be eligible for the most attractive interest rate a given lender is offering on a loan. You’ll also generally be able to capitalize on credit card offers.

If your score falls from 825 to 805, that may be a disappointing thing to see. But ultimately, it shouldn’t have an impact on your borrowing ability. You’re likely to get the same offers with a score of 805 as you would with an 825.

But if your score isn’t as great to begin with, a 20-point drop could have negative consequences. As an example, it takes a minimum credit score of 620 to qualify for a conventional mortgage. If your score is sitting at 635 and it suffers a 20-point drop, that could put you below that threshold.

What’s more, you may run into a situation where a credit card company requires a minimum credit score of, say, 700 to qualify for a specific offer. If your score falls to 680, you might lose out on that opportunity — even though 680 is still considered a good credit score to have.

How to avoid a drop in your credit score

Sometimes, credit score drops are unavoidable. If you pay off your auto loan or mortgage, for example, you might see your score go down. A long-standing loan can lend itself to a more robust credit history, which is a factor in calculating your score.

Plus, paying off a loan could result in a less-favorable credit mix. If your only open accounts are a mortgage and five credit cards, and you pay off your home loan, your credit mix will be even less balanced.

To be clear, you shouldn’t not pay off a loan on schedule because you’re worried about a hit to your credit score. And if you’re able to save money on interest by paying a loan off early, that’s also a move worth making, even if a small credit score hits ensues.

You can try to avoid a minor credit score drop by being careful about the way you borrow. If you recently applied for a credit card, for example, waiting three to six months to open another one could spare you a small but noticeable drop.

All told, a 20-point drop in your credit score generally isn’t something to lose sleep over. But it still wouldn’t hurt to understand the factors that could lead to that sort of hit and avoid some of them if that’s possible.

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